Rates on 30-year mortgages drop below 6 percent

First time under the threshold since week of Feb. 14; big tumble in 15-year rates, too

Associated Press

Published
4:00 am PDT, Sunday, March 23, 2008

Rates on 30-year mortgages dropped below 6 percent last week for the first time in more than a month, reflecting aggressive efforts by the Federal Reserve to cut interest rates to protect the economy from a serious recession.

Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 5.87 percent last week, down from 6.13 percent the previous week. It was the first time that 30-year rates have fallen below 6 percent since the week of Feb. 14.

Rates on 30-year mortgages dropped below 6 percent in the second week of January and stayed there for six straight weeks as the sharp economic slowdown stirred concerns about a recession.

In the past month, bond markets had grown worried about rising inflation pressures that are coming at the same time that the economy is slowing. But the meltdown of Bear Stearns, the nation's fifth-largest investment bank, prompted the Fed to move aggressively to pump money into the financial system and slash a key lending rate by three-fourths of a percentage point on Tuesday.

Analysts said all of these Fed efforts had helped to ease pressure on interest rates that had been generated by higher inflation readings. And helping in that area, the government reported last week that consumer prices were unchanged in February, a significant moderation from the January readings, while retail sales fell by a larger-than-expected amount in February, reinforcing worries about economic weakness.

"Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," said Frank Nothaft, chief economist at Freddie Mac.

Other categories of mortgages were mixed last week. Rates on 15-year fixed-rate mortgages fell to 5.27 percent from 5.6 percent and five-year adjustable-rate mortgages dipped to 5.56 percent from 5.58 percent. But rates on one-year adjustable mortgages edged up to 5.15 percent from 5.14 percent.

The mortgage rates do not include points. For 30-year and 15-year mortgages, the nationwide average fee was 0.5 of a point. Five-year mortgages carried a 0.9 of a point average fee, while one-year mortgages had a 0.8 of a point average.

Housing has been suffering through a severe slump that has dragged down house prices in many parts of the country. The fallout is hitting both homeowners and the economy at large, raising worries about a possible recession.

The downturn in housing is being worsened by a severe credit squeeze with lenders tightening standards in the face of soaring mortgage foreclosures.